NMick Rothblott, a respected Loan Officer in Illinois, reminds us no discussion of the prospects for our economy in 2012 would be complete without an examination of the housing sector. As daunting as the debt crisis in Europe is, there is no doubt that the real "x" factor is housing. This topic is so complex that it is hard to sort out. For example, we know that the housing sector will not rebound without employment strengthening. But we also know that the housing sector is very important in creating employment. If that sounds like a catch-22, it is. And it is one of the main reasons our recovery has been tepid up to now. We also believe that it is no coincidence that the housing market seems to be improving now that the employment sector is also getting stronger. Of course, we will know more about how strong the employment sector is in a few days because Friday we will see the release of January's employment report.
Regardless of the results of this report, we do know employment growth was stronger in 2011 -- especially towards the end of the year. In January first time unemployment claims fell to their lowest levels since April of 2008. We also know that existing home sales and starts for single family homes also have increased in the last quarter of 2011. Again, no coincidence. The National Association of Home Builders has indicated that every single family home built creates three jobs. To put it another way, just over 425,000 single family homes were built last year. That is over one million jobs. Sound impressive? It is still a few million jobs less than the sector produced during the real estate boom years. An increase of 100,000 houses this year would create 300,000 additional jobs and that does not include the apartment sector which is starting to boom and the commercial sector which has yet to awaken from its slumber. Conceivably, we could see close to 500,000 additional jobs created this year with modest growth in building. Even more importantly, those jobs create even more demand for housing. Will this happen? Next week, we will start looking at possibilities, but only the data will give us the real answer.
The Markets. Rates were up for the first time in several weeks, however this data was released before rates receded in light of the recent Federal Reserve Board's announcement regarding their intention to keep rates low. Freddie Mac announced that for the week ending January 26, 30-year fixed rates averaged 3.98%, up from 3.88% the previous week. The average for 15 year loans rose to 3.24%. Adjustable rates were up slightly, with the average for one-year adjustables increasing to 2.74% and five-year adjustables rising to 2.85%. A year ago 30-year fixed rates were at 4.80%, still almost a full percent higher from this week. Attributed to Frank Nothaft, Vice President and Chief Economist, Freddie Mac, " Fixed rates on home loans ticked up this week as the housing market ended 2011 on a high note. New construction of one-family homes rose 4.4 percent in December to an annualized rate of 470,000, the most since April 2010. Existing home sales increased 5.0 percent at the end of the year to 4.61 million houses, the largest amount since May 2010. Furthermore, pending home sales in November and December averaged the highest reading since the March and April 2010 period." Rates indicated do not include fees and points and are provided for evidence of trends only. They should not be used for comparison purposes.
Current Indices For Adjustable Rate Mortgages
Updated January 27, 2012
|Daily Value||Monthly Value|
|6-month Treasury Security||0.08%||0.05%|
|1-year Treasury Security||0.12%||0.12%|
|3-year Treasury Security||0.31%||0.39%|
|5-year Treasury Security||0.77%||0.89%|
|10-year Treasury Security||1.96%||1.98%|
|12-month LIBOR||1.099% (Dec)|
|12-month MTA||0.182% (Dec)|
|11th District Cost of Funds||1.201% (Nov)|
Two key measures now suggest it's an excellent time to buy a house, either to live in for the long term or for investment income. First, the nation's ratio of house prices to yearly rents is nearly restored to its prebubble average. Second, when rates are taken into consideration, houses are the most affordable they have been in decades. Whether buying is a better deal than renting isn't a stagnant fact but a changing condition that depends on the relationship between prices and rents, the cost of financing and other factors. But the math is turning in buyers' favor. Stock-oriented folks can think of a house's price/rent ratio as akin to a stock's price/earnings ratio, in that it compares the cost of an asset with the money the asset is capable of generating. For investors, a lower ratio suggests more income for the price. For prospective homeowners, a lower ratio makes owning more attractive than renting, all else equal. Nationwide, the ratio of home prices to yearly rents is 11.3, down from 18.5 at the peak of the bubble, according to Moody's Analytics. The average from 1989 to 2003 was about 10, so valuations aren't quite back to normal. But for most home buyers, rates are a key determinant of their total costs. Rates are so low now that houses in many markets look like bargains, even if price/rent ratios aren't hitting new lows. As a result, house payments are more affordable than they have been in decades. Source: Smart Money
While home sales may be sluggish in many parts of the country, more buyers are placing an emphasis on green -- with some studies showing that green homes can sell for higher dollar than non-green homes. In Portland, Ore., an analysis from the Earth Advantage Institute found that green-certified new homes sold, on average, for 8 percent more than non-certified green homes--and in one of the counties included in the study even more than 23 percent higher. Earth Advantage Institute analyzed sales data from May 2010 through April 2011 from the Portland Regional MLS. The study found that the sales price was even higher for existing homes outfitted green -- an average of 30 percent more, and one county reporting a more than 61 percent premium on green-certified homes. The green certifications on the homes were from Energy Star, LEED for Homes, Earth Advantage, or an Earth Advantage/Energy Star combination. This is the fourth year in a row that the Earth Advantage Institute has conducted such a study and has found green-certified homes sell for higher prices than non-certified homes. “There's certainly a premium there to be had,” says green builder Josh Wynne from Sarasota, Fla. “Clients are naturally skeptical of green building. If you're disingenuous or sell green as an upgrade like a granite counter,” it won't work. But the hook, experts say, is to promote the upgrades by showing the energy savings that green homes can offer. Source: EcoHome
A staggering 39.2 million American households consist of people living alone or with nonfamily members, changing the outlook for professionals who want to design and sell homes to this demographic, John Burns Real Estate Consulting said in a report. As the old saying goes "times are a-changing," and the consulting firm believes the real estate industry has to embrace the incoming tide of nonfamily households in some shape or form. So who are these trend-breakers who have increased their ranks from 7.9 million to 30-million plus in the last 50 years? These households are more likely to prefer homes under 2,500 square feet, while families in the recent past desired 3,000-square-foot homes. This emerging demographic desires no more than three bedrooms and forget the size of the home, in reality they want proximity to work and entertainment. While this segment still values a sense of community, they are less likely to praise the virtues of media rooms, community pools and tot lots, the John Burns report says. Source: HousingWire
Above information shared by: Mick Rothblott
Mortgage & Construction Loan Planner
40 Grant St
Crystal Lake,IL 60014